Amid all that has been written on this subject, there is very little about how it is supposed to work, or whether it has in fact worked, writes John Kay, Professor of Economics at the London School of Economics, in his recent Financial Times article Quantitative easing and the curious case of the leaky bucket.
The very phrase “quantitative easing” seems designed to discourage non-technical discussion. But the real answer, I fear, is all too familiar: these policies may not benefit the non-financial economy much, but they are helpful to the financial services sector and those who work in it.
Well, we have done a survey to find out what do people outside of finance know about Quantitative Easing. It shows that the vast majority of people believe shares the opinion with Prof John Kay that QE didn’t benefit much the non-financial economy.
396 people took part in this survey. People surveyed are the mix of the supporters of Positive Money (who are likely to be more familiar with the subject) and their friends, therefore it’s not a representative sample of the general public. It would be very interesting to see the results of this kind of survey on a bigger sample of British general public… Although, it is a small sample, it still shows some interesting, perhaps surprising insights:
Survey Quantitative Easing – Report
1. In the first question we asked what people think QE actually is. 71% of the people got it right, however 21% thought that either Bank of England or the government provide through QE loans to productive businesses. 7% have never heard of QE, or heard of it but had no idea what it is.
2. What is your view about QE? The results show that the general feeling about QE is rather negative. Only 11% thought it means spending the money into the economy. Most people thought it was mainly about bailing out the banks. Among ‘other’ responses there were views like: “it’s a devaluation of currency”, “it’s a scam”, “it’s a desperate measure to kick start the economy when the system is doomed to fail”…
3. One of the intended objectives of QE was to motivate banks to lend to productive businesses. Do you think it has worked? Now this is really striking: Only 1.5% thought it did work, 15% thought it did work to some extent and the vast majority (83%) thought it didn’t work.
4. How is the vast majority of money created today? Since the respondents were in large part the supporters of Positive Money, 74% of the answers were correct. However even in this sample a high percentage of people (17%) thought that the Bank of England is the only institution creating new money! See the results in the table below. Among ‘other’ responses there were some interesting views like:
- You can’t create money you can just change its value.
- Gordon Brown sold off a lot of gold reserves
- Money or wealth is created when there is energy available at a price which allows profit to be made.
Many people wrote they “had no idea” (!), or “I am not sure what you mean…”
5. What do you think the consequences of QE have been? As you can see from the results below, most people think the consequences were rather negative. Among other responses the views were mainly that:
- it has provided life support to the banks
- it has propped up the housing market
- it has driven down savers interest rates
- it was a postponement of another crash.
6. Do you think there are more effective ways of injecting new money directly into the real economy, rather than into the financial markets?
This is remarkable – almost 95% think there are! (Us at Positive Money obviously strongly agree!)
7. If money was created through QE and spent into the real economy instead of into financial markets, what should it be spent on?
8. What would be your preferred option of injecting QE-created money into the real economy?